2014

The centre piece to the 2018-19 Budget was a reduction in personal income tax rates and thresholds albeit that some of these are phased in over a long period. The proposal is a 7-year 3-step plan to reform personal income tax as follows:

Step 1 - A new non-refundable Low and Middle Income Tax Offset (LITO) from 2018-19 to 2021-22 providing up to a $530 benefit per year for individuals with income up to $90,000. This will be phased out to nil for individuals earning more than $125,333.

Step 2 - Changing the tax thresholds to fix bracket creep. The first step in this process is an increase in the 32.5% tax bracket to $90,000 (currently $87,000) with effect from 1 July 2018.

From 2022-23 the threshold of the 19% bracket will increase to $41,000 (currently $37,000) and LITO will increase by a further $200 to $645 (currently $445).

The top threshold of the 32.5% bracket will increase to $120,000 from its revised level of $90,000 with effect form 1 July 2022.

Step 3 – The final step is a simplification of the tax bands with, from 1 July 2024, the removal of the 37% tax bracket with the resultant threshold of the 32.5% bracket increasing to $200,000.

A summary of the Tax rates and thresholds for 2018-19 onwards is as follows:

Tax rates and thresholds

Rate

2018-19 to 2021-22

2022-23 and 2023-24

2024-25 onwards

0%

$0 - $18,200

$0 - $18,200

$0 - $18,200

19%

$18,201 - 37,000

$18,201 - 41,000

$18,201 - $41,000

32.5%

$37,001 - 90,000

$41,001 - 120,000

$41,001 - $200,000

37%

$90,001 - $180,000

$120,001 - $180,000

N/A

45%

$180,001+

$180,001+

$200,001+

The above table excludes the Medicare Levy of 2%. The proposed increase of 0.5% in the Medicare Levy to directly fund the NDIS will now not proceed which provides an effective tax cut.

Testamentary Trusts

The availability of concessional tax rates for minors receiving income from testamentary trusts will be limited with effect from 1 July 2019. The rates will now only be available in respect of income derived from assets that are transferred from deceased estates or the proceeds of the disposal or investment of those assets. This change is designed to mitigate a concern that some taxpayers are inappropriately accessing the lower tax rate by injecting assets unrelated to the deceased estate into testamentary trusts.

Everett Assignments

Partners that alienate their income by assigning rights to the future income of a partnership will no longer be able to access the small business capital gains tax concessions in relation to these rights. This is an integrity measure and will not result in a change to the small business CGT concessions themselves and apply from 7:30PM (AEST) on 8 May 2018.

This measure will prevent taxpayers inappropriately accessing the CGT small business concessions without giving that entity any role in the partnership.